Intercambio comercial de productos agrícolas entre Ecuador y los miembros

Additionally the reporting style of the documents required by regulation leaves a big scope for improvement. This related directly to Transparency Reports published by CRAs in Europe as well as globally in the Annual Reports on Nationally Recognized Statistical Rating Organizations by SEC.

The Transparency Reports are part of the disclosure rules introduced in CRA I regulation (Article 12 and Part III of Annex I, Section E). They require that CRAs release information outlined in Part III of Section E of Annex I of CRA I regulation on annual basis. These include legal structure and ownership status, information about internal control mechanisms, allocation of staff between rating tasks, report of record-keeping policy, and conclusions from the annual internal reviews, accounts on rotation policy and accounting information including revenues, followed by governance statement on the annual accounts.

When the staffing information across rating tasks is considered the only CRA which complies fully with the regulatory requirements is Moody’s. The CRA publishes statistics on staff dedicated to new credit ratings, credit rating reviews, methodology or model appraisal and senior management as precisely quoted in Part III of Section E of Annex I. S&P and Fitch either report statistics relating to staffing which have not been mentioned in the regulation or present aggregate numbers which are not split across categories as required. For instance, Fitch reports total analytical staff which comprises of individuals employed in new credit ratings, reviews and methodology and appraisal (see more in section 4.4.1).

Further issue relates to availability of European CRAs data to conduct the analysis. Namely, the start reporting date for Transparency Reports amongst the big three is different. According to the Article 12 and Part III of Annex I, Section E of CRA I regulation each CRA is obliged to publish an annual Transparency Report. It should be released at the lasts three months after the end of the financial year. In case of the first report ESMA recommendation is that it should be published three months after registration in case when the date of registration exceeds more than four months from the end of the financial year (Alcubilla and Del Pozo, 2012). All the three big CRAs were registered on the same date, namely 31 October 2011. S&P and Moody’s

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released their first Transparency Reports in March 2011 while still undergoing the registration process.

As written by Moody’s (2011) “Moody’s Investor Service has prepared this first Transparency Report in the European Union (“EU”) pursuant to the Regulation… At present none of the MIS EU Subsidiaries have been registered. This Transparency Report reflects the structure and operation of MIS’s business in the EU for the year ended 31 December 2010, with specific information provided for each MIS EU Subsidiary as required by the Regulation. MIS anticipates that, if registered, the nature and content of this Transparency” (Moody’s 2011; p.2).

This might raise the question as to why Fitch did not produce their first report in the same time? Was it the voluntary action of the other two CRAs or an effect of ambiguous regulation which allowed flexibility in choosing the date of the first report? Further, was there was any incentive for Moody’s and S&P to release their reports one year earlier?

Furthermore, the format and content of Transparency Reports does not provide consistency of the submitted statistics across the CRAs (also see discussion in section 4.4.1). This lack of format standardisation prevents from cross sectional comparisons which seem to be the aim of having publicly available information in the first instance.

Similar issue in reporting styles is present in the SEC reports required by Section 6 of the Credit Rating Agency Reform Act of 2006. The reliability of annual reports is questionable given the volatility in the measures (see section 4.4.2.2). There is lack of standardisation of what is required. For example, CRAs report different types of outstanding ratings (issue vs issuer level) which are then tabulated and presented as alike in the SEC reports. Namely, the smaller CRAs105 report number of issuer ratings (i.e. number of companies) whereas others106,107 including the big three (S&P, Moody’s and Fitch) disclose issue ratings (debt securities) (for more details see section 4.3). This practice lacks consistency and precludes not only the market participants but also regulators themselves from making assessments which will inform the debate about the CRAs.

105. E.g. A.M. Best, EJR, JCR, Morningstar, R&I. 106. E.g. DBRS, KBRA.

107. Furthermore, inconsistencies among the reported outstanding ratings per asset class are present. For example in 2012 KBRA reports issue outstanding ratings on sovereigns while in previous and following years it discloses issuer ratings.

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To this end one of the lessons that can be learned is that the regulation is not robust enough, since it allows individual interpretations by CRAs and fosters disclosing the information which is convenient for CRAs. In some cases it could be seen that the information provided is voluntarily presented by the CRAs rather than required by the regulation. There should be a precise requirement as to which statistics are to be produced and in which format to prevent this inconsistency in the reporting styles and enable apple vs apple comparisons.